If a recent article, published at Zero Hedge, is any indication, there appears to be a deep misunderstanding of how the foreclosure process works. The article, titled “Deutsche Bank, Akerman Sentertfitt Sues Lynn Szymoniak's Son With No Financial Interest In Her Case” is troubling because the author clearly does not understand what he is writing about. More troubling is that there is so much animosity toward banks these days that much of the public thinks, immediately, that everything they do is wrong, regardless of what it is that they have done.
By critiquing this article, do NOT assume favoritism toward Deutsche Bank, the idea that we are taking Deutsche Bank's "side", or that we support the practices or policies of any particular mortgage servicing agent. In fact, this author has penned two articles heavily critical of big bank mortgage messups. The articles can be found here and here. We have also critiqued Deutsche Bank indirectly, in the past. Every person of good conscience will find himself in opposition to the practice of robo-signing, as well as every other quasi or actual fraudulent practice that has been complained of.
This author would break up many banks because "too-big-to-fail" means they are too big to exist. This includes not only the American variants, but also Deutsche Bank, an international super-giant that also happens to be Germany's biggest bank. Breaking up too-big-to-fail banks should be done not only for the good of society, but also because it would greatly benefit their shareholders. Shareholders would receive more return on their capital if their investments were maximized into companies that could efficiently operate without the type of massive internal loss of control that characterize the super-banks. We have said so, in writing.
Yet authors, especially on popular anti-establishment websites like Zero Hedge, have an obligation to check their facts. Mistakes are understandable, but some effort must make some to be both educated and balanced. For example, homeowners are not the only ones hurt by the worldwide crisis. Both institutional and individual mortgage investors have been devastated. Many of the institutional investors are pension and investment funds and insurance companies that Mom & Pop rely on for life insurance, car insurance, retirement, etc.
A huge amount of damage was caused by irresponsible behavior in the mortgage market. The injury to societal stability is now compounded by the issue of individuals who don't want to pay for what they bought. A lot of folks, unfortunately, have a strange idea that they have the right to rely on technicalities to justify living in houses mortgage and rent-free, even though they are using other people's money to do it. This is now paraded around as a "noble fight against corrupt banks" in numerous articles run on websites like Zero Hedge. In truth however, it is nothing of the kind. It is nothing more than societal parasitism. It is wrong and no amount of self-justification will make it right.
Where people make allegations that have no basis, the record should be set straight. The object of an attack, in this case Deutsche Bank and its lawyers, cannot successfully defend themselves in the court of public opinion. Everyone will suspect whatever they say. So it is the job of independent commentators to inform the public of the truth. This author has absolutely no connections to Deutsche Bank, nor seeks any. But fair is fair, and the bank has been falsely accused.
When a mortgage is foreclosed, the mortgage servicing agent (in this case Deutsche Bank) has a fiduciary duty to take whatever steps are needed to take back the property free and clear of “encumbrances” upon the title. An “encumbrance”, in this context, is a legal claim or right. New buyers WILL NOT buy properties that come complete with unresolved claims. Nor will title insurers insure such properties. Encumbrances upon title are dealt with in the foreclosure process by naming any person who may have a contingent claim upon the property, no matter how weak that claim may be. If they are not dealt with during foreclosure proceedings, they remain as a sword of Damocles hanging over the head of any prospective future buyer.
The Zero Hedge author was offended by the fact that Deutsche Bank named Lynn Szymoniak’s son as a party defendant in its foreclosure lawsuit. Naming a "third-party" defendant in a foreclosure action is NOT unusual. In fact, it is usually mandatory, at least in many cases. Unlike personal injury lawsuits, or lawsuits that seek money damages for breach of contract, foreclosure lawsuits mostly seek to “quiet” title to the land and house in the interest of selling it to someone who can afford it. Generally speaking, they don't seek money damages.
In a few states, the person who has defaulted can, potentially, be liable for a so-called "deficiency" between what the house is sold for and what is left on the mortgage. That is not true in all states. For example, in California, Arizona and a number of other states purchase money mortgage payors cannot be held to any deficiency. The bank or mortgage investors must eat the entire loss. In any case, third party defendants who have not signed the mortgage papers cannot be held to pay deficiency judgments in any state. Third party defendants are named as parties in foreclosure lawsuits, solely to clear title of any of their potential claims.
Morgage investors and banks do not generally pursue vendettas through the foreclosure process. If their employees and/or independent contractors have committed some type of fraud during the purchase, origination or issuance process, that will be dealt with as a separate issue. If banks wanted to pursue vendettas, it would be much easier to do so by filing a lawsuit based on some other claim.
Adding a defendant to a foreclosure suit usually ends in a remedy that accomplishes only one thing; that person will be barred from filing a legal claim later on, seeking to take rights to the house against the rights of a subsequent buyer. We have no doubt that Deutsche Bank added the young man as a defendant because a title examination determined that he might have some type of legal right to the property. The right may have been created by an inheritance from his father or someone else, a quitclaim deed or otherwise. In order to obtain clear title, the bank must add such persons as defendants.
The successful completion of foreclosure, where the mortgage is no longer being paid, is not popular, but it is critical to our nation. If it isn't done, we are never going to exit this depression. Title must be passed back to banks or, where appropriate, back to investors who actually own the loans so that the properties can be resold into stronger hands.
Once the process is completed and properties are in the hands of owners capable of paying the mortgages, the nation's crisis will be well on the way toward resolution. The longer this process takes, as millions of properties stay in limbo weighing down balance sheets with non-producing assets, investors are being cheated of the interest they are entitled to. This results in societal and economic instability and that, in turn, ends up manifesting itself as a lack of willingness to invest and build for the future.
Investors may well have lawsuits against Deutsche Bank and/or other servicing agents if they did something that has caused unjustified losses or delay of the foreclosure process. If fraud has taken place in the sale of the property, that homeowner may also be entitled to some sort of legal redress. However, to write articles that promote the idea that it is evil or wrong to quiet encumbrances upon title through the court system, is sheer folly.
People must pay their mortgages if they want to stay in their house. Failing to pay the obligation is NOT, in itself, a noble or good thing as the article seems to imply. It is wrong. There may be circumstances that justify the termination of payments, such as the type of fraud mentioned above, but absent that, if you fail to pay your mortgage, even if you overpaid for your house, you should expect to have it taken from you. Just as it is not okay for banks to become government-sponsored parasites in the financial markets, neither is is okay for homeowners to do the same thing on a lesser scale.
In short, Deutsche Bank is doing absolutely nothing wrong by naming someone as a party to a foreclosure lawsuit. Investors may want to think twice or, perhaps better, ten times before buying stock in companies that are heavily involved in the mortgage fiasco. That is because the liquidity rally that has floated their stocks against common sense and reason may be coming to an end. But Zero Hedge should think many times before publishing such articles.
Generally speaking, Zero Hedge is an interesting website. It is nice to see some of the media bucking the Orwellian trends that seem to affect the other news we get from mass media conformity. However, articles such as the one noted above,should not be published until they are vetted with a lawyer. Otherwise, there is a very good chance of misleading the public instead of informing it. If people are going to take charge of an out-of-control government apparatus now under the control of special interest groups, they need to be aware of what is true and what is false. As it is, the particular piece we are complaining about accomplishes little more than the spreading of disinformation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.